Malta continues to be one of the best economic
performers in Europe. Economic growth remains robust, with real
GDP expanding by 6.4% in 2017, up from 5.2% in the previous
year. Growth was primarily driven by net exports, though
private consumption also continued to support aggregate demand.
Extending recent trends, a diverse range of services –
including tourism, professional services and remote gaming
– supported the increase in activity. Both
manufacturing and construction contributed to economic
expansion, though to a much smaller degree.
This buoyant economic performance was reflected in labour
market outcomes. Employment went up by 3.4% last year, while
the unemployment rate fell to record lows. Increased
participation rates and continued inflows of foreign workers
mitigated labour supply constraints and dampened upward
pressures on wages. Indeed, with wages broadly keeping pace
with productivity, unit labour costs were stable. Although
price pressures picked up during the year, they remained
contained from a historical perspective. The annual rate of
inflation, based on the Harmonised Index of Consumer Prices,
accelerated from 0.9% in 2016 to 1.3% in 2017.
Against this positive backdrop, the surplus on the budget
balance widened to the equivalent of 3.9% of GDP. A healthy
primary surplus, falling interest expenditures and rapid growth
in nominal GDP all combined to reduce the general government
debt to 50.8% of GDP. Malta also registered a positive external
balance, with the current account of the balance of payments
running a surplus for the sixth consecutive year.
Looking ahead, economic growth is projected to slow down in
the years to come, trending downwards to around 4.5% by 2021.
Over the coming years, the Government continues to target a
budget surplus, allowing for further reductions in the public
debt. In turn, this will favour the creation of the leeway
necessary to allow the use of fiscal policy as a
countercyclical tool if needed.
Within this overall fiscal strategy, the Government intends
to focus its capital spending on addressing infrastructural
bottlenecks that inevitably arise in the wake of rapid economic
growth. Particular attention will be given to transport,
housing and waste management. Given the importance of the
provision of cross-border services to the Maltese economy,
another policy priority is to strengthen supervisory
institutions and to effectively counter money laundering, fraud
and tax evasion. While expenditure reviews have led to
substantial savings on recurrent expenditure, tax rebates aimed
at low to middle-income households will ensure that the
benefits of economic growth will be more widely shared.
Risks to this benign economic situation stem mainly from
abroad. Given that Malta is a very small, extremely open
economy, the Maltese Government is especially concerned about
the rise in protectionist sentiment worldwide. This would have
a negative impact on trade and growth, which could jeopardise
the increases in global living standards that many have